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Value Engineering began at General Electric Co. during World War II. Because of the
war, there were shortages of skilled labor, raw materials, and component parts. Lawrence
Miles and Harry Erlicher at G.E. looked for acceptable substitutes. They noticed that
these substitutions often reduced costs, improved the product, or both. What started out
as an accident of necessity was turned into a systematic process. They called their
technique as “Value Analysis”.
In the year 1954, US Navy Bureau of ships adopted same technique in their effort at
‘cost avoidance’ during the design stage and saved millions of dollars. They named it as
“Value Engineering”. VE follows thought process that is based exclusively on
“function”, i.e. what something ‘does’ not what it is.
Value Engineering
Value Engineering is where the value of all the components used in the construction of a
product from design to final delivery stage are completely analyzed and pursued.
VALUE(P) = Desired performance
---------------------------
Overall Costs(C)
Value can be increased by either improving the Performance or reducing the cost.
∗ Automobile Industry.
∗ Heavy Electric Equipment Industries
∗ Ship Builders
∗ Railways & Heavy Vehicles Mfr.
∗ Electrical & Communication Machinery Mfr.
∗ Fabrication Industries
∗ Process Industries
∗ Metal, Fibre, Food, Chemical & Steel
∗ Architectural & Construction Firms and also
∗ All Service Sectors
DEFINITION
VALUE ENGINEERING :
“ QUALITY
“ APPEARANCE
“ LIFE/RELIABILITY
“ CUSTOMER FEATURE
Over a period many other terms or methodologies have evolved based on the same
functional approach but laying emphasis on some specific type of objectives. Some of
these terms do not even use the term “Value”. For example:
Value Management
Value Assurance
Zero Based Budgeting
Value = -----------
Cost
Questions *0 What is it? *1 What is it?
*2 How can we make it *3 What does it do?
for less? *4 What must it do?
*5 How can its functions
be performed for less
Aims Reduce cost of present product Provide user-required
functions at lowest cost
*6 ‘User-First’ Attitude
*7 Functional Approach
*8 Team Approach
*9 Creative Approach
VALUE ENGINEERING BASICS
JOB PLANS
The basic framework for conducting a value study is the Job Plan. Value Engineering is
a systematic approach and it has a well-considered job plan that needs to be adhered to
maximise the effectiveness of the technique. A typical job plan is given below:
1. GENERAL/ORIENTATION PHASE
Use good human relations
Inspire team Work
Work on specifics
Overcome roadblocks
Apply good business judgement
2. INFORMATION PHASE
Secure the facts
Determine the costs
Fix costs on specifications and requirements
3. FUNCTION PHASE
Define the functions
Evaluate functional relationships
4. CREATIVE PHASE
Establish positive thinking
Develop Creative ideas
5. EVALUATION PHASE
Refine and combine ideas
Establish costs on all ideas
Develop alternative ideas for functions
Evaluate by comparison
6. INVESTIGATION PHASE
Use company and industry standards
Consults vendors and specialists
Use specialty products, processes and procedures
7. RECOMMENDATION PHASE:
Present facts
Present costs
Motivate positive action
INFLUENCE OF SELECTION OF TIME ON
VALUE ENGINEERING(VE) APPLICATION
PHASE VALUE ENGINEEING EMPHASIS
CONCEPT VE studies during this phase are directed at:
FORMULATION PHASE Furnishing inputs needed to ensure the most
economical decisions to achieve the functions
sought.
achieving low total cost of ownership (rather than
just low acquisition cost)
Essential requirements
Technical characteristics
Design tasks
FINAL DESIGN PHASE VE studies during this phase are limited to:
Let us consider at this stage what is meant by “Value’. ‘Value’ is itself is some what
difficult to define. It means different things to different people.
Value Analysis
VA is an step by step approach to identify the functions of a product, process, system or
service; to establish a monetary value for that function and then provide the desired
function
at an overall minimum cost without affecting any of the existing parameters like Quality,
Maintainability, Productivity, Safety and other Performance characteristics.
Also, it is often confused with the cost and price of a product or service. One way of
defining the value of an item is:
Worth to you
Value = ------------------
Price you pay
This means that if you feel that you have your money’s worth, then you have received
100 per cent value. Which indicates that ‘Value’ has a subjective aspect, for what is good
value for one person need not necessarily be so far another. In general, if for any function
or a product or a service, you feel you are paying too much, or it costs you more than you
think it should, there is scope for improving its ‘value’ into it. This leads us on to another
useful way of looking at ‘value’. Value is the least cost that can accomplish reliably a
function or a service. This implies that in achieving reduced cost, the quality and
performance of the item are maintained. It follows, therefore, that value analysis is a
technique which builds “Value’ into an item. Value can also be defined as that
combination of quality, efficiency price, and service which ensures the ultimate economy
and satisfaction of the purchaser. Value Analysis can be understood as a technique which
helps everyone to determine this combination. It can be seen, therefore, that several
components make up ‘Value’. There is value arising from the function or end use of an
item, and from its ability to perform a useful function reliable. There is the subjective
aspect of value in terms of esteem or prestige value or artistic value; for example, the
extra chrome 63 and styling used to sell automobiles, or the neck-tie or diamond ring you
may wear. Again, there is the cost value made up of the material and labour costs,
overheads and any other costs incurred in producing the item. However, in the popular
mind, this is closely associated with esteem value, as there is a mistaken belief that
because something costs more it is worth more. Finally, there is the resale or exchange
value which may be taken as the ability to part with money for possessing a particular
product. In addition we have place value with regard to the usefulness of a product at a
particular place.
3) Exchange Value:-
It is in terms of the amount of any other commodity that can be obtained in exchange of
the commodity under consideration . It depends on time and place.
4) Esteem Value:-
It is due to special characteristics, some manufacturers enjoy customer goodwill and
historical prestige.
5) Cost Value:-
It is the total of all the costs incurred to manufacture a product .i.e Unnecessary cost due
to ;
§ Bad product design,
§ Inefficient manufacturing method,
§ Inefficient manufacturing processes,
§ Lack of Standardization,
§ Choose of wrong machine and tools,
§ Bad Layout,
§ Bad working conditions,
§ Accidents to the worker,
§ Machine breakdown,
§ Bad quality Raw material,
§ Lack of training to the workers,
§ Excessive variety of products,
§ Frequent changes in product design,
§ Improper material handling,
§ Defective packaging of product,
§ Waiting,
§ Searching,
§ Bad house keeping, etc.
VA is an effective problem solving and quality assurance tool that can facilitate Caltrans
goals, to maximize Safety, Mobility, Delivery, Stewardship, and Service. VA studies
should be considered to:
� Meet or exceed standards and safety objectives
� Foster a team approach to problem solving and project development
� Improving a project’s performance while maximizing quality
� Identify and develop strategies to mitigate or avoid risks and the
associated costs
� Identify opportunities which promote Context Sensitive Solutions
� Validate project’s scope, need and purpose, and baseline design
APPLICATION OF VALUE ANALYSIS
Value analysis can be applied universally, i.e., to everything – materials, methods,
processes, services, etc., where it is intended to bring about economics. One should
naturally start with items where the maximum annual saving can be achieved. This
immediately suggests that items whose total annual consumption in Rupees is high
should receive top priorities in the application of Value Analysis. In the same manner,
scarce materials, imported materials, or those difficult to obtain should also receive the
attention of the value analyst. Bearing this in mind, Value Analysis can be systematically
applied to categories of items, such as those listed below in order to bring about
substantial cost reduction.
1. Capital goods – plant, equipment, machinery, tools and appliances;
2. Raw and semi-processed material, including fuel;
3. Sub-contracted parts, components, sub-assemblies, etc;
4. Purchased parts, components, sub-assemblies, etc.,
5. Maintenance, repairs, and operational items;
6. Finishing items such as paints, oils, varnishes, etc.
7. Packing materials and packaging;
8. Printing and Stationery items;
9. Miscellaneous items of regular consumptions;
10. Power, water supply, compressed air, steam and other utilities
(services) and
11. Materials handling and transportation costs.
As mentioned earlier, items where the saving can be substantial should obviously
be taken up first. Also, items which are imported, or difficult to obtain, and monopoly
items, should receive high priority.
However, even if no economy can be effected immediately by Value Analysis on any
particular item, then usefulness of the technique should not be forgotten altogether. The
item should be taken up again for value analysis after six months or a year, the period
being dictated by the findings of the investigation. New ideas may come to your mind at
some other time. Also, it should be noted that the conditions in the market keep on
changing fast, and new materials, new suppliers, and new processes come into existence
rapidly as a result of phenomenal technological progress taking place at present. A
frequent and systematic review of the items already value analyzed, with advantage, may
result in further economies.
VALUE VALUE
ANALYSIS ENGINEERING
Indicates application on the product that is into * Indicates application on the product at
its
manufacturing. design stage.
All factors come together including workers, * It is always done by a specific product
It may change the present stage of the product * The changes are executed
technical knowledge
and experience.
Value analysis is a staff function like, for instance, Industrial Engineering, and should be
organized as much. It should be directly under a high-ranking officer from the Senior
Management of an undertaking. This is necessary because Value Analysis concerns all
departments, and the analyst must have access to them and to their records, performance,
costs, etc. Depending upon the size of the undertaking and its scale of operations, there
can be a Central Value Analysis Cell to co-ordinate the work of individual analysts
attached to the design, purchase, production, and engineering departments. Where there
is only one Value Analyst, he may be attached to the Industrial Engineering Department
or to the Purchase Department. Value Analysis is essentially a team effort. What
particular items to be taken up for value analysis, and what action is to be taken is usually
decided by a small committee comprising representatives from the Design, Production,
Purchase and Accounts Departments. Any other departmental representative can be
coopted if and when necessary. It is the Purchase Manager (or Material Manager) who
has to initiate action, convene meetings at regular intervals, and see that substantial
results are obtained. A large share of the initial phase of the Value Analysis work will be
done by the Purchase Manager, or by other departments, at his instance. It is his
responsibility to seek the maximum value when a product requirement comes upto the
point of purchase. It is his duty to challenge wasteful and avoidable costs inherent in the
items he is asked to buy. It is, therefore, inevitable that a large part of whatever Value
Analysis work is done is initiated by the Purchase Manager.
VALUE ENGINEERING
Value engineering is the term applied to value analysis done the design and prototype
stage of a product. The potentials of saving are a more in case value analysis is done at
design stage. Other advantages is that any changes at this stage are less costly than to
effect the same at a latter stage, when the production is in full swing. There are a few
limitations however on value engineering work. At the design and proto-type stage, the
time is rather short since a company wants to put a new product in the market before any
of its competitors can set in and value engineering will have a very short time to apply
their techniques. Evaluation of the value at this stage becomes difficult in absence of any
customer reaction and opinion.
A product goes through 3 stages (1) Developmental (2) Growth and (3) Maturity before
being out of date. Consider now the design efforts put on a product. At developmental
stages the design effort is the maximum. At the growth stage the effort is much less and
is mainly modifications and changes. At maturity stage hardly any design attention is
needed. The value of the product slowly increases in development and growth stages as
more features are added and desired changes and modifications are effected. At maturity
stage the value increases to peak and then slowly starts reduction because of competition,
change of customer tastes and other factors till the product falls out and becomes out of
date. It is this stage where value analysis can, still enhance the value by cost reduction
and lengthen the Maturity period of a product. Thus when the design effort is diverted to
other products, it is the time for value analysis to be undertaken. The success of value
analysis for one product of course be made use of in the design of other products by
development wing.
CASE STUDY
“Cost Reduction of a product through
Value Analysis & Value Engineering”
Introduction:
The current business scenario is very demanding with a continuous demand from the
market forces to reduce the product price. The pricing as demanded by the market, forces
the businesses to reduce product development and manufacturing costs to remain
competitive. Manufacturing costs of a product can be broadly categorized in the
following heads:
• Raw material
• Labor
• Process that is technology driven
Product engineers are constantly faced with the following challenges:
• Reduce production cost
• Reduce the material cost
Value Analysis & Value Engineering (VAVE) methods are very important and useful
in driving down the product cost which helps companies retain market share and sustain
their profitability.
At QuEST, we uncover those projects of our customer which have a good potential to
improve profits. QuEST has a team of engineers who specialize in VAVE to achieve
cost reductions of products.
A typical VAVE exercise could reduce the total cost of a product by 5-40%. The typical
elements of a VAVE exercise are as follows :
• Information: Understand the current state of the project and constraints / requirements.
• Function Analysis: Understand the project from a functional perspective; what must
the project do, rather than how the project is currently conceived. The function describes
what something does and function analysis is the process where the team reviews the
project's functions to determine those that could be improved. Function Analysis can be
enhanced through the use of a graphical mapping tool known as the Function Analysis
System Technique (FAST). FAST applies intuitive logic to test functions, create a
common language for a team, and test the validity of the functions in the project.
• Creative: Generate a quantity of ideas related to other ways to perform the functions.
• Evaluation: Reduce the quantity of ideas that have been identified to a short list of
ideas with the greatest potential to improve the project and meet the Value Engineering
study objective.
• Development: Further analyze and develop the short list of ideas and develop those
with merit into value alternatives.
• Presentation Phase / Implementation: Present value alternatives to management team
and other project stakeholders or decision makers.
5. Typical Flowchart
An example :
The approach to a real life problem and the methodology followed by QuEST to reduce
the product cost is demonstrated through the following example.
5.1 Background and Problem statement:
One of the customers of QuEST is a leading manufacturer of industrial components for
control applications. This unit is very popular in high end applications.
The customer wanted to develop a unit that not only costs 25% less but whose
performance exceeds that of the existing product.
5.2 Challenges:
• Redesign of parts considering minimum impact on existing tooling
• Redesigned modules should enable field replacement
• Logic/Software compatibility with field units
• Ease of assembly
• Design must match existing housings and connectors
• No modification of standardized parts in the product family
Next, the VAVE team laid down the Functions of each item of the product for Value
analysis.
This enhanced the understanding of the product functionality. This also helped to
understand the Form, Fit & Functions of each of the items & sub-assemblies. With this
study, the VAVE team had divided the main project into many sub-projects with respect
to subassemblies to have diversified results for subassemblies and parts. This function
diagram threw up many questions to the team which enabled them to come up with a
number of new ideas.
• How the Product is sized? What design parameters were employed for this product?
• Focus on high cost components and challenge by asking “why do we need this part and
what value does it provide to our customer?”
• How else we can design/make it.
• Understand design change impact on subassembly or overall product.
• System level appraisal is desirable to consider different methods or concepts for
delivering the same or better value.
• Component level assessment is lookedfor to consider alternate materials, processes, and
more efficient designs.
• One of the guiding principles of lean design is to “eliminate or standardize.” Can a part
be combined with others and thereby be eliminated? If not, can it be made common with
other parts in the product,
without compromising FFF (Form Fit & Function). This typically provides quick
savings.
• Identify and capture all cost reduction opportunities.
The team applied the concept of Pugh Matrix for system & component level. Rankings
were discussed with team, collated and analyzed for choosing the optimum concepts.
Next, FMEA was conducted on the selected concepts to further fine tune the results.
Failure modes with high Risk Priority Number (RPN) were identified. Failure modes
were prioritized and communicated to the designers to address these risks. Alternate
solutions and improvement were discussed and finalized. 3D solid modeling was done to
visualize the product. It also helped to simulate the active and passive conditions of the
product. Components were standardized to reduce the part count. Simulation and testing
against the CTQs helped to optimize the product for performances. Design calculations
were performed to verify the design for gears, springs, snaps in the plastic members, etc..
Also the DFMA was conducted on various aspects of the design & CTQs. A detailed
Differential Cost Analysis was conducted with the customer and their suppliers. The
result showed significant cost reduction of each part of the product. It was observed that
the costs were reduced mainly due to alternate materials usage, the process and by
elimination/replacement of a part by integrating with the adjacent one.
Costs of direct material were compared for the original and new design. A significant
38% of savings in direct material cost was realized by this project. The team also
achieved a reduction of 34% in the part count. This has resulted in many intangible
benefits like savings in procurement costs, Inspection costs, Inventory cost,
transportation, reduced variation, reduced assembly costs & Time, etc.
6. Conclusion:
QuEST ‘Value Engineering team’ achieved 38% of savings in direct material cost and
reduced part count by 34% in this project. Having a Paint brush does not make one a
painter. While we strive to implement the different VAVE tools, we realize that the years
of experience in product design & development is very essential to achieve the desired
objective. VAVE tools and techniques, if applied properly, with trained & experienced
resources will provide an extremely powerful suite to improve productivity, lower cost,
improve quality and also shorten the time-to-market.
Acronym:
VAVE : Value Analysis & Value Engineering
FAST : Function Analysis System Technique
VOC : Voice of Customer
QFD : Quality Function Deployment
CTQ : Critical To Quality
BOM : Bill of Material
FFF : Form, Fit & Function
FMEA : Failure Mode and Effects Analysis
DFMA : Design for Manufacturing and Assembly
CONCLUSION